Russia and Its Auto Factories are Severely Lacking in Lean

The fundamental concepts of lean are designed for free, democratic markets. The lean focus on creating value for the customer assumes that customers have the right to define value, and that customers have the ability to choose among competing products.

In a dictatorship, the government may limit the products available and not be concerned with what the customer would view as valuable. The results include inefficient operations, unpopular products of low quality, and unhappy citizens – conditions that, in my view, cause citizens to view the government as illegitimate and may ultimately lead to its downfall.

These thoughts are prompted by an article in The New York Times profiling the Avtovaz auto plant in Tolyatti, Russia – which the article, written by Andrew Kramer, describes as “one of the least efficient automobile factories anywhere in the world — each worker produces, on average, eight cars a year, compared with 36 cars a year at General Motors’ assembly line in Bowling Green, Ky., for example.”

The cars made at the factory are inexpensive, but quality is poor and style hasn’t changed much in 40 years.

Russian leaders are not concerned with inefficiency.

The government is giving Avtovaz billions of dollars in aid, no strings attached. No chief executive firings. No renegotiation of workers’ contracts. No demands to turn out better-quality cars, much less fuel-efficient hybrid cars. (The first car with an airbag was introduced here in 2005.)

But the auto bailout, Russian style, is intended more to ensure peace in the streets than restructure a business, much to the lament of some critics who think tough love might be better.

“The key issue is too much government protection,” Yegor T. Gaidar, a former prime minister, said. “The factory will create as many problems for the Russian economy as General Motors for the States.”

Russia is suffering from the worldwide recession. Layoffs in the past, including 400 job cuts at a GM joint venture in December, sparked protests. It is that potential for social unrest that worries politicians.

So they are providing bailout money to preserve jobs, imposing a tariff on imported cars and even subsidizing auto loans to stimulate demand. (The tariff set off protests and a police crackdown in Vladivostok, a major center for importing and servicing secondhand Japanese cars.)

Russia may succeed, in the short term, in preserving jobs and limiting social unrest. But the bigger picture is a country not competitive globally, with a troubled economy, a government strained by excessive spending, and a population simultaneously demanding more government care and better products.

Change will not come easily, and will undoubtedly involve considerable upheaval in government and the economy. It will also require massive societal culture change, in the way people think about their country, their government and the world of business.

That last area will require lean thinking. I hope change does come, and I hope lean can play a small part in making it happen.

1 comment:

Vladimir Dzalbo said...

Russian Automotive is a huge pain for any Russian person (including me)

The problem is: if you ask any Russian citizen (not employed by Avtovaz)he will say "Close it down". Not only the quality of production is low: the design s are way behind 21st century. The most popular car models were not changed since 70s (which was actually designed by FIAT)..

Avtovaz is a huge black hole and bailing it out is useless.

Interesting point that by saving workplaces in Tolyatti government takes away the one and only source of income for thousands and thousands of people in Far East (Vladivostok). It is hard to imagine how many people are involved in second hand Japanese cars import, transportation, service, etc. The risk of increasing tariffs for import that the whole region will undoubtfuly suffer a lot.

The only way out as I see it to continue support in establishing foreign Auto giants joint venture, assembly lines. This will help to preserve jobs and stop taxpayers paying for useless pieces of metal produced at Avtovaz. In this model there's a little hope that foreign specialists will bring their expertise not only in building cars but in lean thinking as well..

Though, I should say that will be a tough path as well. (Blogged about this topic some time ago http://dzalbo.blogspot.com/2009/02/big-why-russian-automotive-example.html )